Risk is inherent in almost all aspects of life, whether it’s changing jobs, travelling overseas, climbing mountains, or investing. You can manage and understand risk.
What are the risks?
Share prices can fluctuate whether you are investing in a single business or an index of broader shares like the S&P/ASX 200. It’s natural to see the value of your investments fluctuate.
A business’s actions can affect its share price. Other external factors, such as a pandemic in the world or a conflict abroad, may also influence it. Although you may have less control, it is still your decision whether to buy or sell.
After taking brokerage fees into consideration, you will lose if you sell a share at a lower price or the same price as you paid initially.
What is ASX?
The ASX stands for Australian Securities Exchange. The Australian Securities Exchange is where Aussie stocks can be traded.
More than 2,000 companies are listed on the ASX. When you purchase a share of a business, you are essentially buying a piece of it. The bigger your slice of a company, the more shares you own.
You can check a company’s current share price on the ASX. The ASX is open weekdays from 10 am to 4 pm Sydney time, but it may be closed on public holidays or only open half-days.
What is the maximum Risk I should take?
You can decide your level of Risk by looking at the age and timeframe you plan to invest. If you plan to invest well into your 60s but are in your 20s, then you may be better able than someone who has a shorter time frame for investing.
You can also use your lifestyle and personality to determine how much Risk you are willing to take. The ideal amount to invest will not significantly impact your life, even if the worst happens.
How do I manage risks?
By diversifying your portfolio of shares, you can reduce the Risk associated with investing all your money in one company or sector. Spreading your investments over a variety of industries like energy, finance, and healthcare, as well as including a mix of large and small companies, will help you mitigate Risk. Diversify your portfolio by looking at other “asset classes” such as bonds, property, etc.
To diversify your portfolio, you can use exchange-traded funds (ETFs), a type of investment that gives you exposure to different assets, companies, or industries.
Where can I buy ETFs?
CommSec Pocket allows you to choose any ASX-listed ETF or one of ten themed ones, such as sustainability, tech, or the 200 largest ASX companies.
Tools for Managing Risk
You can use various tools to manage your Risk. A good place to begin is with the broker with whom you are trading.
CommSec gives you a quick overview of your share portfolio, including how diversified it is across industries. It also shows you if you are overexposed to a certain sector. The share quality check will also tell you what experts think of your shares and whether or not other investors are purchasing or selling them.
When investing, it can be not easy to know when to sell. You may be torn when the price of an investment in your portfolio begins to fall. Do you sell to avoid future losses or hold on to see if it will rebound? You can manage these decisions by setting up conditional orders through your CommSec Account. You can place an automatic sell order when your share price falls below a certain level, depending on your risk tolerance. It’s a good option for people who don’t monitor the stock market constantly and want to protect themselves against a sudden price drop.
Four ways to manage Risk
There are ways to reduce the Risk associated with most investments. You can, for example:
1. Diversify your investment portfolio
2. Be sure to keep an eye on your investment portfolio
3. Dollar-cost averaging can help you reduce your Risk of market timing
4. Research before investing